German BAE/EADS "veto" was a disappointment, UK's Osborne says

David Milliken

3 IN. DI LETTURA

TOKYO (Reuters) - British finance minister George Osborne on Saturday blamed an effective German veto for the failure of a $45 billion merger between British defense firm BAE (BAES.L) and European aerospace group EADS EAD.PA this week.

Speaking to British reporters on the sidelines of an International Monetary Fund meeting in Tokyo, Osborne said the transaction might have succeeded if the national governments and the companies’ shareholders had discussed it more thoroughly.

“It is not that we were committed to the deal, we just thought it worth discussing. We have been a bit disappointed primarily by Germany’s attitude, which in effect vetoed the deal,” Osborne said.

“I would like to have found more time to discuss the possibility of merger,” he added.

Talks to create the world’s largest aerospace and defense company collapsed on Wednesday. Several sources involved in the discussions said German Chancellor Angela Merkel had blocked the deal, but that Britain and France were supportive.

German sources have however said they were unconvinced by the deal’s commercial logic, and were concerned the combined company could be locked out of U.S. defense deals.

BAE is a private British company, and the U.S. armed forces account for nearly half of its revenue. Because Washington is reluctant to give contracts to firms influenced by foreign governments, BAE considers minimizing state control as crucial to its business.

EADS has a more complicated share structure that gives big influence to German and French industrial groups and the French state. To keep its influence at the combined firm, Germany would have had to have bought out a holding by engineering firm Daimler.

Osborne said the British government’s stance had been straightforward.

“We had some very clear red lines: we were absolutely clear our national security had to be protected, absolutely clear that we wanted to protect job and investment in the UK, and we were concerned about large shareholdings held by other countries.”